Sunday, November 13, 2016

Keynes and the Universal Basic Income

One of the most famous Keynes' predictions is that people could afford to work less hours   and have more spare time for leisure. His Essay 'Economic Possibilities for our grand-children" was written before the Great Depression and published in 1930. But his point seems to be misinterpreted bymainstream economists. His prediction was that, in the long term, say a hundred years, living standards in 'progressive countries' would be between four and eight times as high. The main arugment is that the society would be more productive with technological progress and resulting increased productivity. Hence  "mankind would  have resolved its economic problem".   

A book published  eight years ago by some of the world's leading economists explores the reasons Keynes was mistaken about a new era of leisure. One argument is Keynes' forgetfulness about distribution.  The trend in recent years, though, has been towards more income inequality, between and within groups. The gap between the top 1% of earners and the rest has widened, but so has the gap   among all other sub-groups of society. The rich  spend more as they get richer, which leads to others wanting to spend more as well. Not all of them can afford to maintain the spending habits of those better-off  , and as a result they borrow. The result, contrary to what Keynes may have imagined, has been a collapse in savings ratios in the US and Britain, and a rise in debt levels and bankruptcies. The other main argument is about working hours. There is no country that conforms to Keynes's ideal of a 15-hour working week. However, France has introduced the 35 hour week that right wing governments wanted to scrap and ask people to work longer. Recently, Sweden has voted for a six hour working day for all workers.  The question is why with sustained technological progress, people still work longhours,  in the US 30% more than in Europe.

Over the last 50 years, living standards in developed western economies have seen rapid growth; by 2030 it is likely that they will have risen at least eightfold if there is a strong recovery from the financial crisis.  But rising living standards have not seen people deciding to satisfy their material needs.  People with low wages have no choice but to work long hours. In his essay in 'Revisiting Keynes" , Richard Freeman notes that more Americans than Europeans say that they want to increase hours worked than to decrease at given wage rates, and that's probably a function of a lower minimum wage and stagnant real incomes for all but the highest earners. Furthermore, widening gap in earnings may create an incentive to work longer hours. 

Keynes's  failure might be  to recognise that distribution matters. The economic problem will not be solved while a quarter of the world lives in abject poverty, nor while a good slice of those living in developed countries are not sharing in economic prosperity or feel they need to spend longer and longer on the workplace.

Keynes' view might be ethnocentric but his argument referred to progressive societies such as France or Sweden. It had to be put in context, bearing in mind the accumulation of capital and the wide variety of goods that technological progress offers. What he had in mind is the ' good society' that Galbraith attempted to lay out twenty years ago.

 In our unequal societies,  a greater degree of income equality would indeed help to improve the welfare of low earners. The new frontier is the introduction of a universal basic income (UBI)whatever the form it takes. Y. Varoufakis made convincingly this point :  "A universal basic income allows for new understandings of liberty and equality that bridge hitherto irreconcilable political blocs, while stabilizing society and reinvigorating the notion of shared prosperity in the face of otherwise destabilizing technological innovation". His proposal is to fund UBI not with taxation but from returns on capital, i.e.. profits. This could be an important step up towards a more equal society.


Sunday, October 23, 2016

Neoliberalism and austerity

mainly macro: Neoliberalism and austerity: I like to treat neoliberalism not as some kind of coherent political philosophy, but more as a set of interconnected ideas that have becom...

Sunday, August 21, 2016

The legacy of the the Ventotene Manifesto

Tomorrow, the Italian PM Renzi will meet French president Hollande and German Chancellor Merkel in Ventotene to discuss  the path of future European integration. The location is highly symbolic: Ventotene is where Altiero Spinelli, a founder of the federalist movement elaborated (along with Ernesto Rossi and Eugenio Colorni) a manifesto for the United States of Europe (called the Ventotene manifesto) while imprisoned during the second world war.

In his historical speech at the university of Zurich in 1946, Winston Churchill advocated for the United States of Europe. He pronounced words which may seem today those of a convinced European federalist like Altiero Spinelli who wrote a few years before   his manifesto of Ventotene. He said: The structure of the United States of Europe, if well and truly built, will be such as to make the material strength of a single state less important. Small nations will count as much as large ones and gain their honour by their contribution to the common cause. (...) If we are to form the United States of Europe or whatever name or form it may take, we must begin now.

The seed was sown and was actually picked up by three personalities that even for this became part of European history: Schuman, Adenauer, De Gasperi, from France, Germany and Italy, who adhered to the Ventotene Manifesto and founded as a first concrete step the coal and steel Community, which was followed soon after by a common  authority in Rome and the signing in 1957 of the European Treaties. Starting with a European Parliament with relevant institutions that culminated in a real confederation of states: Italy, Germany, France, Benelux (Netherlands, Belgium, Luxembourg). Then Spain, Portugal, Austria and so on. The result is known in both the positive phase as   in the negative, until the acceding States became 28 and among them 19 joined the single currency called the euro, created and put into circulation between 1999 and 2002

Today Europe is very different from what the manifesto called for more than 70 years ago. It is confronted to unprecedented problems : waves of migrants from South Africa  and the South East Europe; secular economic stagnation ; emergence of populist movements and xenophobic parties, populist, against the common currency; Great Britain withdrew from the Union; wide spread Islamic terrorism led by Isis  leverages social peripheries of the whole world and finally on the visible decline of the European sentiment that is spreading across the continent and casts doubt even the current supra-national institutions thereby making distant and doubtful the transition to the Federation which was at the heart of Spinelli's Manifesto.

Tomorrow Italy, France and Germany will meet precisely in Ventotene to curb this situation nothing short of desperate. What will come out of this meeting between the three powers which now represent a kind of triumvirate born to indicate (certainly not to impose) the future of European path without the United Kingdom?

It is expected that the informal talks will serve as a springboard for action when leaders of the 27 meet in Bratislava in September. If it delivers a 'credible response' , the summit could lead to a new 'political pact' (as Gozi, the EU secretary for Eu affairs called it in an interview to the FT on 18 August) to be launched on the 60th anniversary of the Treaty of Rome, which founded the European Community in 1957.  As Philippe Aigrain put it, the call for further EU integration that Italy  supports with more pooling of sovereignty , especially on issues of economic policy, migration and security may be opposed by France and Germany. Italy's narrower objectives for further integration include boosting the Juncker plan, with more funds for infrastructure and support to businesses. It also  envisages more funds for youth unemployment, cultural exchanges as well as for the integration of migrants and deportation of those not eligible for asylum with readmission agreements with countries of origin.

While the federalist project is still regarded as old fashioned, Europe inarguably needs change to respond to its many crises. Either Europe finds the strength and determination to respond to the threats that are endangering its existence or it will vanish. None of the urgent problems can wait: we need  to govern the migration flows and combat terrorism with the unification of intelligence services, legal provisions and the creation of common defense systems.  How long can Europe last with unsustainable inequalities within and between countries.

Guy Verhofstadt's book (Le Mal Européen) precisely addresses these issues and makes concrete proposals in a federalist perspective. More than ever, what was regarded as a utopian project becomes the only realistic solution for the salvation of our continent.